On December 3, 2013, the U.S. Court of Appeals for the Fifth Circuit handed down its decision in D.R. Horton v. National Labor Relations Board, reversing the finding of the National Labor Relations Board (NLRB). The Board held that D.R. Horton's employee arbitration agreement, entered into as a condition of employment, violated the National Labor Relations Act. The agreement required employees to voluntarily waive all rights to trial before a judge or jury on claims arising from the employment relationship. Claims were to be resolved exclusively through final and binding arbitration. It also prohibited an arbitrator from treating employee claims or the arbitration as a class or collective action, and from awarding relief on a class or group basis. The agreement left employment disputes to individual resolution.

The Board found the agreement unlawfully restricted employees' Section 7 rights to engage in concerted activity. In its January 2, 2012, decision, it noted the agreement barred employees from pursuing claims in any forum except arbitration, where collective action was prohibited. On appeal, the Fifth Circuit overturned the Board's decision. The Court found that the Board did not give proper weight to the Federal Arbitration Act (FAA) in issuing its decision. Under the FAA, arbitration agreements must be enforced according to their terms unless the agreement violates the FAA's savings clause or application of the FAA is precluded by congressional mandate. The Fifth Circuit found that neither of these exceptions applied. With its ruling, the Fifth Circuit joined the Ninth, Eighth and Second Circuits which have similarly held that arbitration agreements containing class action waivers are enforceable.

The Board also found the agreement to be an unfair labor practice under Section 8 of the Act because it stated that all disputes would be resolved by arbitration without making exception for unfair labor practice charges. The Board concluded that an employee could reasonably read the agreement as a preclusion to filing charges with the NLRB. The Fifth Circuit enforced the Board's order on this point.

The Fifth Circuit's decision is a boon for employers; however, the NLRB made it clear the fight is not yet over. Despite the Fifth Circuit's ruling, Administrative Law Judge Thompson issued a decision in Leslie's Poolmart, Inc., finding a mandatory and binding employment arbitration clause violated the NLRA. Specifically, Judge Thompson noted that the U.S. Supreme Court has not expressly overruled D.R. Horton. Recently in Haynes Bldg. Servs., LLP, Administrative Law Judge Locke found an arbitration clause to violate Section 8 (a)(1) but recommended to the Board that it dismiss the allegations addressing the respondent requiring its employees sign the arbitration agreement as a condition of employment. On January 28, the Board filed an unopposed motion requesting a 45-day window to petition the Fifth Circuit for rehearing or for rehearing en banc regarding its decision.

As the NLRB continues to expand Section 7 rights, employers must be mindful of the legal landscape to avoid violating the NLRA.